Amazon buying LoveFilm? It may be a ruse.

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“Do I have any views on the rumoured sale of LoveFilm to Amazon? Many. But not for public consumption. Sorry!” That’s the quote from one of my sources close to the story that is developing around the so-called Amazon/LoveFilm discussions.

The Sunday Times broke a story (no link because of their paywall) yesterday claiming Amazon.com has made an offer for European DVD rental business Lovefilm of £200 million ($313 million). Amazon already has a large stake in LoveFilm after selling its U.K. and German DVD rental business to them in early 2008 and putting some cash in to take a 42 per cent stake in the business.

Amazon spokesman aren’t commenting on the rumour and all my sources are claming up as well. This indicates that something is going on but it may well not be a sale to Amazon at all. It may in fact be a feint, a rue, a rumour put out in the marketplace to create some buzz about a business that, after several years of scaling, has investors impatient for a liquidity event. The Sunday Times is routinely used for these kinds of “plant” stories. If I had a pound for every time such a story had been placed in the Sunday Times for just such a purpose I’d be a rich …. etc

And while it’s true that Lovefilm has been increasing its digital movie services, announcing deals this year with Sony and Samsung for streaming moves direct-to-TV, the truth is, this is tinkering. It’s core business is sending out DVDs, and at this point, we have to ask a question.

With Amazon reportedly developing a Netflix-copy TV-movie subscription service, why would they want to buy a business where there remains a big physical goods operation?

It’s clear that TV, video and movie rental is poised to move entirely to the cloud anyway, so buying a business with a legacy physical operation is just going to slow you down right now.

And in fact, another well-placed sources has poured cold water on the sale to Amazon. “As far as I know – it’s not true” he told me.

So we can conclude that something is definitely going on but whether it’s a ruse to help Amazon and other stakeholders to realise an exit from the business to a third party, or a genuine sale to Amazon, it’s not yet clear.